SE Asian currencies up amid cautious optimism
SE Asian currencies up amid cautious optimism
SINGAPORE (Dow Jones): For the first time in months, some market players were daring to take a bullish view on Southeast Asian currencies, as late yesterday regional foreign exchange markets ended a week of choppy trading significantly higher against the U.S. dollar.
A happy confluence of forces, including a stronger yen, lower Thai interest rates and the International Monetary Fund's approval of extra assistance funding for Indonesia all boosted sentiment toward the region's currencies, which are set to appreciate further in the coming week, according to traders and analysts.
"Obviously markets will continue to take their cue from the yen, but in a way that's unfortunate because internal economic dynamics in Southeast Asia are changing," said Vincent Low, currency and fixed income strategist at Merrill Lynch in Singapore.
As evidence that the foreign exchange market may be undergoing a change of heart, traders pointed to the baht, which rose against the U.S. dollar in Asian trading despite tumbling interest rates in both the onshore and offshore markets.
Even as recently as a few weeks ago speculative players would have taken advantage of any softening in offshore interest rates to borrow baht in order to sell the currency short. But not any more, say traders.
Far from spinning into a free fall, however, the baht actually edged higher on the day. Late in Asia the U.S. dollar was quoted at 40.5650 baht, down from 40.6150 baht the day before.
"Some people are bearish on the baht because the Bank of Thailand has been injecting liquidity into the system to bring interest rates down, but the simple truth is that customer interest to short the baht has dried up and without customer interest, there is no driving force to push the currency lower," said a baht trader at a U.S. bank in Singapore.
Sentiment has also improved toward the Philippines, which, like Thailand, is believed to have reached the bottom of its economic downturn. On the Philippine Dealing System, the U.S. dollar ended Friday's session at 41.49 pesos, down from 41.65 pesos at the previous close.
The market is looking more kindly on the rupiah, too, after the IMF on Thursday approved an additional standby credit facility for Indonesia worth an extra $1.3 billion.
"Once the IMF dollars start flowing, Bank Indonesia will be able to replenish its reserves and take some of the pressure off the local banking system," said the head of regional currency trading at a Japanese bank in Singapore.
Lacking credit lines to offshore banks, Indonesian banks in search of U.S. dollar funding had been forced to buy the U.S. currency in the spot market. Now with the promise of funds from Bank Indonesia, the local banks have turned dollar sellers.
"The rupiah will be back at 10,000 (rupiah to the dollar) by the end of August," asserted the Japanese bank trading chief.
The run-up in the rupiah also served to boost the ringgit, and, briefly, the Singapore dollar.
The market remains wary of more corporate failures in Malaysia, and little good news is expected to emerge from Finance Minister Anwar Ibrahim's current visit to the U.S.
Although the ringgit will continue to benefit from any further strengthening in the yen or the rupiah, most see the currency weakening over the longer term.
Late yesterday the U.S. dollar was quoted at 4.0925 ringgit, down from 4.1095 ringgit the day before.
The Singapore dollar, too, found some initial support from the market's general bullishness on regional currencies. The currency dropped back sharply in late trading yesterday, however, on what traders attributed to position squaring, although they added that the Monetary Authority of Singapore had earlier been buying the U.S. dollar to check the local currency's rise.
Late yesterday the U.S. dollar was quoted at S$1.6925, up from S$1.6860 towards the close of Asian trading on Thursday.
In North Asia, the new Taiwan dollar finished a little higher, with the U.S. dollar closing at NT$34.323, compared with NT$34.362 on Thursday.
With the Seoul market closed for a holiday, no trading took place in the won. But after a week in which the South Korean currency rose by 2.5 percent, buoyed up by a ballooning current account surplus, many analysts expect the won to continue to rise, with the U.S. dollar dropping to 1,250 won), compared with 1,284.50 won at Thursday's close.